$50b wiped off ASX in 2016 on China worries

Australian shares fell for a third time this year - and for a fourth straight session - as a stronger-than-expected Chinese currency devaluation, falls in Asian markets and a surprise nuclear bomb test in North Korea unsettled investors.

The benchmark S&P/ASX200 lost 1.2 per cent to 5123.1, while the broader All Ordinaries fell 1.2 per cent to 5178.3. In the three trading days of 2016, the ASX200 has lost nearly 3.3 per cent or about $50 billion in value.

"We started off fairly flat but we started to pull back after the Chinese sharemarket opened," said Morgans private client advisor Matthew MacDonald. "There's a bit of jitteriness about that. As well some of the Asian markets have been in negative territory today, oil has pulled back overnight, and a lot of the energy and mining stocks are down."

Mr Macdonald said the decision by the People's Bank of China to fix the yuan lower had also negatively affected the market. "The Aussie moved against the US and sometimes when the Aussie moves it has a negative effect on the market."

The People's Bank of China set the reference rate for the currency at 6.5314 to the US dollar, down from 6.5169 the previous day, continuing its recent policy of slowly devaluing the renminbi. The devaluation was only 0.22 per cent, but more than investors had expected.

A nuclear test by North Korea also added to concerns, weighing on regional markets. In late trade, the Nikkei in Japan was down 1.2 per cent, Hong Kong's Hang Seng was down 0.7 per cent and Korea's Kospi shed 0.5 per cent, while the Shanghai Composite bucked the trend, up 1.4 per cent.

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Iron ore weakens

Miners were hit hard after commodity prices fell, with iron ore shedding nearly 3 per cent to snap an 11-day winning streak. BHP Billiton fell 2.4 per cent to $17.15, Rio Tinto lost 3 per cent to $42.75 and Fortescue dropped 6.1 per cent to $1.78.

The banks declined: ANZ by 1.3 per cent to $26.71, Commonwealth Bank 1.2 per cent to $82.11, National Australia Bank 1.4 per cent to $28.98 and Westpac 1.5 per cent to $32.21. Fellow blue chip Telstra slipped 1.1 per cent to $5.40.

JB Hi-Fi was one of the day's best performers as shareholders bet that the retailer has had a strong Christmas period and can profit from Dick Smith's failure. Shares finished 2.3 per cent higher at $21.03.

The stock has been on a roll since just before Christmas, posting seven straight days of gains for a 15 per cent rise.

Incitec Pivot profit warning

Morgan Stanley said that both JB Hi-Fi and Harvey Norman, as the closest competitors, were likely to profit from the electronic retailer's collapse.

"If we assume that the around $1.1 billion of Dick Smith sales shifts in line with existing industry market shares, JBH and HVN should pick up around $200 million in annual sales each," the bank said in a note to clients.

Harvey Norman, however, fell back 1.9 per cent to $4.23.

A Queensland freight train derailment in December will cost explosives and fertiliser maker Incitec Pivot $14 million from its full-year net profit, the ASX was told Wednesday.

The train was transporting a shipment of sulphuric acid for use at Incitec's Phosphate Hill fertiliser manufacturing facility in Queensland, but overturned near Julia Creek on December 27.

The company said full plant operations will only resume by the third week of January, although it still expects to produce the targeted 950,000 tonnes of fertiliser during the 2016 financial year.

Shares have responded with moderate falls, losing 4.4 per cent to $3.71.